CGS-CIMB Research’s William Tng has maintained his “add” call on Fu Yu Corp and raised his target price to 35.5 cents, up from his previous figure of 28.8 cents.
Tng said that the company’s FY2020 revenue, which came in 15.9% lower y-o-y at $81.9 million was “in line” with his expectations, and that the 24.7% growth in profits to $9.5 million was 9% above his forecasts.
The better-than-expected net profit performance was due to a leaner cost structure achieved with the restructuring of its China operations.
Tng highlighted that selling and administrative expenses fell 17.4% y-o-y in FY2020, and other notable items in FY2020 results were a gain on disposal of property, plant and equipment of $1.7 million.
This was in addition to government grants of $2.3 million, and lower tax rate of 13.7% versus 21.7% in FY2019.
Tng said “despite the revenue decline in FY2020, return on equity improved with better margin achieved via a lower cost structure.”
After a “challenging FY2020”, he thinks moderate revenue growth could resume as the Covid-19 pandemic eases, and also assumes that Fu Yu will continue to optimise its cost structure and product mix.
On that, Tng has raised his net profit estimate for FY2021-FY2022 by 13.5% to 13.8% amid lowered assumptions on operating expenses and tax rates.
“Our Gordon Growth derived price-to-book value (P/BV) multiple rises to 1.49 times (previously 1.30 times) as return on equities (ROE)s improve driven by lower operating cost and tax leakage. At 1.49 times FY2021F book value per share (BVPS) of 23.8 cents, our target price rises to 35.5 cents,” he writes.
He has also projected dividend yield for the FY2021 and FY2023 at 5.7%.
“We estimate Fu Yu’s net cash per share as at end-FY2021 to be 13.9 cents or 49.5% of its share price of 28 cents on Feb 23.
In a separate note, RHB’s Jarick Seet has maintained a “buy” rating and his target price of 33 cents.
Seet noted that while Fu Yu Corp now has new leaders following the retirement of its founders in January, the company’s management remains the same, and that it will be business as usual for the company.
He adds that Fu Yu’s newly-appointed vice-chairman and executive director Choo Boon Tiong and executive director Seow Jun Hao have amassed valuable corporate experience and diverse knowledge in various businesses
Current CEO and executive director Hew Lien Lee will continue to spearhead and oversee group operations together with his core management team.
Furthermore, Seet sees the company as a “potential takeover target”. With further new projects in the medical, consumer and automotive fronts, he expects positive growth momentum for FY2021.
“The new investor owns 29.8% of the group, [which is] very close to the mandatory takeover of 30%. As a result, we do not rule out a potential privatisation exercise in the future, but not in the near term as the new team will have to settle in and know the company better.” he highlights.
As at 12.39pm, Fu Yu was trading at 29 cents, with a FY2021 price to book ratio of 1.17 and dividend yield of 5.71%
